Inside the Market’s roundup of some of today’s key analyst actions
With WSP Global Inc.’s (WSP-T) US$1.78-billion acquisition of Power Engineers, National Bank’s Maxim Sytchev thinks “the strong [are] getting stronger,” seeing the Montreal-based professional services firm establishing “market leadership” in a new business segment.
Coming off research restriction following the Aug. 12 announcement with the U.S. consulting firm, which has with “a leading presence” in the Power & Energy (P&E) sector, the analyst said WSP is now “gaining leadership within a secularly accelerating vertical.”
“WSP sports leading expertise/scale position in Transport, Buildings and Environmental Services; with Power Engineers in the fold, WSP establishes a leading role in a 4th pillar – Power,” he said. “We believe management/Board continue to demonstrate foresight in deploying capital when it matters at accretive to shareholder terms, cementing a track record of Tier 1 capital allocator not just in the engineering consulting space but industrials in general.”
Mr. Sytchev thinks the acquisition is “a pleasant surprise amid an environment of broadly elevated valuations
... and makes the deal immediately accretive to adjusted EPS.”
“In addition to posting impressive organic growth numbers for the last number of years, WSP management has continued to find transformational assets and scale the already impressive platform through M&A,” he said. “The Power Engineers acquisition builds on the company’s track record of identifying, securing and integrating strategic assets, similar to how the earlier WSP/PB/Golder/Wood transactions built out global leadership in Buildings, Transport and Environment.
“Fundamentally, the appeal of the Power deal is very straightforward. WSP gains exposure to highly -regulated and defensive end -markets seeing structurally accelerated growth (financed largely with countercyclical government spending) with the best visibility (multiple years) we’ve seen in a generation; Power’s 12-year organic revenue CAGR [compound annual growth rate] stands at more than 10 per cent, and has accelerated further post -2020. This is compounded by the company’s U.S. revenue skew (97 per cent of the topline – WSP’s pro -forma business will now derive approximately 42 per cent of its topline from the U.S.) and multi -decade relationships with blue chip clients. WSP management sees significant cost (annualized US$25-million at a minimum) and revenue synergy opportunities, with Power’s margins expected to hit 16 per cent to 17 per cent on a post -IFRS basis this year and likely over 20 per cent once the asset is fully incorporated.”
The analyst also feels WSP is “increasing exposure to structural megatrends” with the deal.
“Adding a large, tier-1 pure-play engineering consulting platform in the US further enhances WSP’s exposure to the key interrelated themes of decarbonization, broader infrastructure investments, electrification, and data centre growth,” he said.
“The expansion further cements WSP’s status as a Tier 1 engineering consultant and complements the firm’s leading industry position in transport, infrastructure, and environmental services; management expects material revenue synergies going forward as the company gains a significant roster of multi -decade relationships with blue chip clients and we believe the move positions WSP to gain higher ‘share of wallet for clients by being a true “one stop shop” in the space.”
Reiterating his “outperform” recommendation for WSP shares, Mr. Sytchev increased his target to $255 from $251. The average target on the Street is $258.08, according to LSEG data.
Other analysts making target adjustments include:
* Raymond James’ Frederic Bastien to $270 from $255 with a “strong buy” rating.
“WSP Global did it again,” said Mr. Bastien. “Our Best Pick for 2024 persuaded yet another prominent U.S. brand to forego a higher payout from private equity and join its dynamic ecosystem. The proposed acquisition of Power Engineers not only marks a transformative step that will position the engineering consultancy at the forefront of the energy transition, per management’s 2022-2024 strategic ambitions, but also enriches its existing three core sectors with extensive cross-selling opportunities. It draws financial support from Street and WSP’s four anchor shareholders, leaving the door open for similar deals in the EMEIA or APAC regions. Just as importantly for us, the Power Engineers deal further elevates the professional services firm’s status as a must-own defensive compounder.”
* ATB Capital Markets’ Chris Murray to $250 from $235 with a “sector perform” rating.
“The proposed transaction would see 4,000 employees join WSP, significantly expanding the Company’s exposure to the power and utilities sector, with Power reporting an 10-per-cent organic growth CAGR over the past decade,” said Mr. Murray. “While we expect cost and revenue synergy realization to lower the effective purchase multiple, the valuation is notably above what WSP has historically paid for similar-sized assets, which we attribute secular trends underpinning Power’s end-markets and an upward re-rating for larger design assets in recent years. Overall, we view the deal as modestly accretive and will provide WSP with diversification benefits and a larger presence in a higher-growth sector, which should support organic growth trends. We remain neutral on WSP, given current valuations.”
* Desjardins Securities’ Benoit Poirier to $257 from $249 with a “buy” rating.
“The Power Engineers (Power) acquisition checked many strategic boxes for WSP as it should position the combined entity to benefit from the electrical grid investment supercycle while also increasing its exposure to the U.S.,” he said. “We derive adjusted EPS accretion of 5 per cent in 2026, although there is likely more upside as WSP realizes revenue synergies and cross-selling opportunities. For WSP to hit double-digit accretion in 2026, we believe Power must achieve 15-per-cent-plus organic growth and EBITDA margins above 21 per cent.”
* BMO’s Devin Dodge to $257 from $252 with an “outperform” rating.
“The transaction bolsters WSP’s position in the high-growth power & energy sector and should result in meaningful cost and revenue synergies over time. The deal is immediately accretive to Adjusted EPS, and we believe there is upside risk to our 2025/2026 estimates from better-than-expected synergies,” said Mr. Dodge.
* RBC’s Sabahat Khan to $261 to $252 with an “outperform” rating.
“The acquisition of POWER Engineers checks many boxes and sets up WSP well over the medium term,” he said. “The deal increases WSP’s exposure to a high-growth/attractive end-market (Power & Energy) and a geography (the U.S.), and offers revenue synergies that the market is not yet contemplating in WSP’s share price. The price paid seems reasonable for an asset of this quality, while the US$25-million of planned cost synergies are likely the ‘starting point’, in our view (we expect a much greater contribution from revenue synergies over the next 2–4 year),” he said.
* CIBC’s Jacob Bout to $264 from $245 with an “outperformer” rating.
* TD Cowen’s Michael Tupholme to $279 from $273 with a “buy” rating.
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Scotia Capital analysts Andrew Weisel and Robert Hope think North American utility stocks are “finally catching a bid” after two years of “investor sentiment teetering between negative and indifferent.”
“We attribute this not to high hopes for AI/data center-driven demand for electricity, as the media continues to emphasize, but rather to a combination of falling Treasury yields, pending central bank rate cuts, rising concerns of slowing macroeconomic growth or a potential recession, and heightened geopolitical concerns in the U.S. and the Middle East,” they said. “Additionally, fundamental growth outlooks are robust, and upcoming capex and demand forecast updates should be bullish catalysts over the next 3-6 months.”
As a result, the analysts increased their sector anchor multiple for the first time since April of 2022 to 14 times to 16 times, which they noted is “slightly higher than the median of our coverage trading at 15.5 times on 2026 estimated EPS and in line with the implied ‘fair value’ from our regression model of 15.6 times.
“We increase our target prices by a median of 9 per cent, and now see a median upside of 12 per cent (including yields); many of our new TPs are at or near Street highs,” they added. We remain defensive in our positioning: our top U.S. picks remain CMS, WEC, and DTE, followed by SO, NEE, LNT, and AEP, and in Canada, we recommend ALA-CA and EMA-CA.”
“We’ve become increasingly positive on the fundamental outlook for this defensive sector. The fundamental growth outlook is extremely robust for North American regulated utilities by historical standards, with capex outlooks driven by opportunities related to accelerating customer demand (data centers and manufacturing in particular), heightened urgency around grid hardening (including storm-related resilience and reliability efforts), and ongoing generation modernization initiatives (i.e., decarbonization and renewables). Given the pace of data center contract announcements, as well as our view that domestic manufacturing activity will pick up regardless of the outcome of November elections, we expect another round of significant hikes to capex outlooks along with roll-forwards of 3–5-year plans to come with 3Q24 results/EEI this fall and with year-end results in early 2025. This is especially true considering that, by all expectations, 2029 will be a higher spending year than 2024. That said, we expect these updates will come with rising equity needs, including for some utilities which have historically avoided the need to issue equity. We also expect that several companies may decelerate the pace of dividend growth in order to protect balance sheets and credit metrics, a trend that we’re already starting to see, as we recently published . This is especially true for Canadian companies, which have been looking to move down payout ratios over time by having DPS growth well below EPS growth.”
For Canadian stocks, Mr. Hope made the following changes:
- AltaGas Ltd. (ALA-T) to $38 from $36 with a “sector outperform” rating. The average is $36.63.
- Atco Ltd. (ACO.X-T, “sector perform”) to $45 from $43. The average on the Street is $43.92.
- Canadian Utilities Ltd. (CU-T, “sector perform”) to $36 from $34. Average: $35.30.
- Emera Inc. (EMA-T, “sector outperform”) to $55 from $52. Average: $52.67.
- Fortis Inc. (FTS-T, “sector perform”) to $63 from $56. Average: $59.43.
“Overall, we have seen an increase in investor interest in utility stocks over the past month,” the analysts added. “This interest has been focused on what we would characterize as the lower-risk and more defensive stocks, which for our Canadian universe include H-CA and FTS-CA. This quality basket has generally outperformed stocks with higher leverage, higher payout ratios, or funding concerns over the past month. We believe this speaks to the market looking for defensive picks, as names with funding and leverage concerns arguably benefit more from a declining rate environment. In Canada, our Sector Outperform stocks are arguably more “risk-on” names as ALA-CA has significant gas midstream exposure and EMA-CA should have its valuation discount narrow as its balance sheet improves from recent asset sales. For investors looking for a defensive Canadian pick, we would point them to FTS-CA over H-CA, given a historically wide valuation spread. In the U.S., however, our positioning skews more toward the lower-risk names as we prefer to “swim in the shallow water.” Our top picks, CMS, WEC, and DTE, are among the most consistent in terms of delivering on earnings expectations, while SO may be considered the most flight-to-safety of our coverage.”
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Ahead of the start of earnings season for Canadian banks later this week, CIBC World Markets analyst Paul Holden adjusted his target prices for a group of stocks.
“Canadian bank stocks are trading around historical average valuation multiples but are still facing subdued loan growth and elevated credit losses,” he said. “Our updated FQ3 EPS estimates imply only 2-per-cent EPS growth for the big banks and negative growth for the small banks given the lack of non-interest revenue to offset rising PCLs. Given the expectation for rising credit losses, we think the probability of surprises is skewed to the downside (e.g., BMO and CWB last quarter). We continue to favour NA for its diversified earnings mix and lower PCLs. We also like TD given low expectations and a discounted multiple.”
They include:
- EQB Inc. (EQB-T) to $105 from $110 with an “outperformer” rating. Average: $104.90.
- Laurentian Bank of Canada (LB-T) to $28 from $30 with a “neutral” rating. Average: $26.73.
- National Bank of Canada (NA-T) to $122 from $124 with an “outperformer” rating. Average: $119.54.
- Royal Bank of Canada (RY-T) to $155 from $150 with a “neutral” rating. Average: $153.11.
“Key themes are mostly similar to last quarter: sluggish loan growth, solid capital markets results and rising PCLs,” said Mr. Holden. “What has improved for the bank outlook is NIM, with a lower probability of negative surprises, and regulatory capital, with some banks starting to put excess capital to work. Credit experience will ultimately determine which way the group trades and will likely distinguish the winners from the losers.
“We are forecasting EPS that is effectively flat quarter-over-quarter, on average, and up only 3 per cent year-over-year on average for the big 6 (using consensus EPS for CM). Our estimates are 1 per cent below consensus for the big 6, on average, and below consensus by a wider margin for the small banks. The big banks should get an earnings lift from capital markets and wealth businesses that the small banks don’t have.”
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In his preview of earnings season for Canadian banks, Cormark Securities analyst Lemar Persaud said the Street’s expectations for Bank of Montreal (BMO-T) appear to be “too high.”
“We are 4 per cent below consensus on BMO heading into Q3/24 reporting season,” he said. “Looking at our estimates, we have a hard time seeing where more meaningful Q/Q EPS growth comes from. Our best guess is credit as we took a conservative stance to setting PCLs. We stuck to guidance that impaired PCLs could remain elevated for the next few quarters, despite Q2 feeling like it was one of those quarters where everything just went wrong (ie. elevated capital markets losses and lowered rate cut expectations which should now be baked into ACLs). In forecasting modest revenue growth, we incorporated soft NII growth and moderating margins (consistent with industry data), a good capital markets quarter and modest fee income growth. Our estimate also incorporates positive operating leverage driven by good expense management, cost savings initiatives and BoTW synergies.”
His target for BMO shares slid to $129 from $133 with a “buy” rating (unchanged). The average on the Street is $126.26.
At the same time, the analyst said he prefers Canadian Imperial Bank of Commerce (CM-T) to Bank of Nova Scotia (BNS-T) in a market recovery. He has a $75 target for CIBC shares, up from $72, while his target for Scotia slid to $65 from $68 with “market perform” ratings for both. The averages are $73.09 and $67.74.
“We believe when there is evidence that we are through peak PCLs, investors will look more closely at the traditional discount banks (Scotia and CIBC),” he said. “We ignore TD as we believe that will mostly depend on the outcomes of the AML investigation. Despite having lagged all large cap banks over the past 2 years and wider discount, we remain hesitant on Scotia given its meaningful strategic refresh and most recent capital allocation decisions. Following the pause on hiking dividends, the bank’s recent minority interest in Key shelves what could have been an attractive buyback program which could be used to signal confidence in its strategic refresh. On the other hand, CIBC’s direction is more clearly understood, we like the more niche US focus, capital positioning, better expense management and success in managing its U.S. office exposures.”
Mr. Persaud also highlight EQB Inc. (EQB-T) as a “solid pick,” raising his target to $121 from $114 with an “outperform” recommendation. The average is $104.90.
“We are lowering our target discount (from a 20-per-cent discount to a 15-per-cent discount) in part, given the bank specific issues faced by some larger cap peers but also due to improving fundamentals,” he said. “We should be moving past peak PCLs as losses on the long-haul equipment financing leasing business should drop in Q3 and lower losses are expected on the non-core Concentra commercial loans. Expense growth should also slow heading into Q3 and stronger markets should bode well for strategic investment gains.”
His other target adjustments are:
- National Bank of Canada (NA-T) to $122 from $121 with a “market perform” rating. Average: $119.54.
- Toronto-Dominion Bank (TD-T) to $87 from $86 with a “buy” rating. Average: $85.91.
“We have a slightly positive view on the sector as the group is now trading at 10.6 times 2025 estimates, which we believe suggests modest potential upside,” said Mr. Persaud. “Despite sector headwinds, we think the group will be supported by steady PTPP and earnings growth over time and an attractive dividend yield. We expect the attractive dividend yield to garner more attention as we see rate cuts play out.
“On the positive side we have: 1) valuation - at 10.6 times 2025 estimates, the banks are still trading below the 11-12 times range the banks can get to when we see momentum in consensus, 2) upside in the capital markets businesses as we see increased confidence in trading/investment banking fee income as rate cuts materialize, 3) yields across the sector are attractive (4.7 per cent) and as rate cuts play out, the group should become even more attractive as we don’t believe any of the large-cap banks will cut their dividends and, 4) little evidence to suggest a sharp increase in PCLs.”
He added: “We still favor lifecos over banks. Our call is mostly based on the strength of the lifecos. We do however acknowledge that this call is moving closer towards favouring the banks given 1) persistently strong credit experience; 2) stronger lifeco valuations (lifecos are now through the banks on a P/B basis); 3) the prospect of lower rates which should be positive to the outlook for the banks.”
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Following last week’s announcement of Gold Fields Ltd.’s (GFI-N) all-cash offer for Osisko Mining Inc. (OSK-T), National Bank Financial analyst Mike Parkin sees an M&A premium starting to get priced into shares of Iamgold Corp. (IMG-T), calling it an enticing “takeout target.”
“Month-to-date (as of Friday’s close), IAMGOLD was up 23.6 per cent vs. the S&P/TSX Global Gold Index up 2.90 per cent, following a strong Q2 earnings result, but in our opinion, more to do with heightened expectations of IAMGOLD becoming an M&A target as the large, long mine life (and expected low-cost) Côté Gold mine continues to ramp up towards full capacity,” he said.
In a research note released Tuesday, Mr. Parkin analyzed recent comparable M&A transactions that he thinks are applicable for the various assets within IAMGOLD’s portfolio, concluding the Toronto-based miner’s share price “is starting to trade at a level aligned with the averages of these various multiples.”
“We believe with record-high gold prices being achieved, a robust FCF outlook for the sector and heightened M&A activity, IAMGOLD could fetch a premium to these averages, supporting further upside potential in the share price,” he said.
Reiterating a “sector perform” recommendation for Iamgold, Mr. Parkin raised his target to $8.50 from $7. The current average is $7.47.
“We derive our $8.50 (was $7.00) target price for IAMGOLD from a 100-per-cent weighted 5.50 times (was 4.75 times) NTM [next 12-month] EV/EBITDA target multiple, which implies a P/NAV of 0.95 times (was 0.85 times),” he said. “On a non-takeout analysis basis, we feel a fair target multiple for IAMGOLD is 0.85 times, reflecting the geopolitical risk present in the asset base, as well as the remaining ramp-up risk associated with the key asset, Côté. On a comparable M&A transaction basis, and the foreseen potential for premium offers to be made in this bull market, we believe the upper range of historical precedents is fair, which equates to 1.08 times NAV. On a 50/50 blended basis, this equates to an implied P/NAV of approximately 0.95 times which we have aligned our EV/EBITDA target multiple with. As of Monday’s close, IAMGOLD is trading at 5.1 times and 3.9 times our 2024 and 2025 estimates on an EV/EBITDA basis and 0.83 times NAV on a cash-adjusted basis.”
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Desjardins Securities analyst Brent Stadler sees Capital Power Corp.’s (CPX-T) potential 1-gigawatt offtake of AI/data centre load at its Genesee Generating Station near Genesee, Alta., “the most significant potential near-term catalyst in the space.”
“We believe CPX could look to contract 1GW from its Genesee facility to satisfy the incremental load, which we estimate would be accretive to NAV by $3.00–9.00 per share (base case implies $5.50) and potentially drive incremental annual EBITDA and FCF (we estimate first full year in 2027) of $80–150-million and $75–140-million, respectively,” he said.
“G1 and G2 will be the most efficient gas baseload facilities in Canada and will likely be very attractive to tech companies looking to power AI/data centres in Alberta.”
Mr. Stadler increased his 2025 estimates after removing “some conservatism.”
“We believe we are still conservative on capacity factors within the Alberta commercial segment, and the recent U.S. acquisitions could continue to outperform expectations — which could drive further upside,” he said. “Our new 2025 EBITDA and adjusted FCF/share (AFFO/share) estimates are $1.502-billion (up 5 per cent vs consensus of $1.427-billion) and $6.55 (up 8 per cent vs consensus of $6.07).
“In our view, an AI/data centre contract at Genesee is possible in the coming 6–12 months although there are still some details to iron out.”
Maintaining a “buy” recommendation for its shares, the analyst raised his target to $54 from $53. The average is $44.09.
“CPX offers investors deep value and exposure to a balanced approach to the energy transition, and is a top way to play the AI/data centre theme. We believe CPX remains uniquely positioned to benefit as we move further into the reliability era,” said Mr. Stadler.
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Following “mixed” second-quarter results from Wesdome Gold Mines Ltd. (WDO-T), National Bank analyst Don DeMarco remains “positive heading into a back-end loaded year” as its Kiena mine in Quebec continues to ramp up.
However, he warned share price returns may moderate after a gain of almost 101 per cent over the last 12 months (versus a 43-per-cent jump for the S&P TSX Gold Index) and the presence of “emerging potential headwinds in higher G&A and management/board vacancies.”
Raising his net asset value per share model by 3 per cent, Mr. DeMarco pointed to several factors in justifying his positive stance on the miner, including higher production at Kiena in 2025, a delevered balance sheet, torque to gold upside and a potential dividend catalyst.
While acknowledging its valuation is “elevated,” he bumped his target to $17.50 from $17.25, keeping an “outperform” rating. The average is currently $15.08.
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In other analyst actions:
* JP Morgan’s Patrick Jones upgraded Lundin Mining Corp. (LUN-T) to “overweight” from “neutral” and cut his target to $17.30 from $18.20. The average target on the Street is $17.69.
* TD Cowen’s Craig Hutchison cut his Endeavour Silver Corp. (EDR-T) target to $7, matching the average, from $7.50 with a “buy” rating.
“We have updated our estimates to reflect reduced throughput at Guanacevi in H2 ... While production and cash flows will be lower in H2 as a result of the trunnion failure, the key takeaway here, our view, is that the cash burn is not as bad as previously expected, and we believe the company remains in a position to complete the construction of Terronera,” he said.
* JP Morgan’s Tien-Tsin Huang lowered his target for Lightspeed Commerce Inc. (LSPD-N, LSPD-T) to US$14 from US$15, below the US$17.46 average, with a “neutral” rating.
* RBC’s Darko Mihelic lowered his Sagicor Financial Company Ltd. (SFC-T) target by 50 cents to $8.50, below the $8.67 average, with an “outperform” rating.
“Reported results were a little lower than we expected but we like the progress that SFC has made on delivering an IFRS 17 drivers of earnings analysis and a ‘core’ framework,” said Mr. Mihelic. “Our estimates are now on a core basis (previously reported basis), reflecting management guidance which was revised downward for core earnings. We assume good growth potential in the U.S. as management plans to invest capital. The gap between reported and core results was rather large this quarter but this does not faze us.”
* Stifel’s Justin Keywood bumped his Savaria Corp. (SIS-T) to $25 from $24 with a “buy” rating. The average is $24.33.
“We roll out 2025 forecasts, following solid Q2 results and our discussion with management,” he said. “We see the 19-per-cent adj. EBITDA margin recorded in Q2 as sustainable in the near term, but our estimates are slightly shy (50 basis points) to embed some conservatism. Our 2025 forecast factors in 120bps expansion to 19.7 per cent, consistent with Savaria’s 20-per-cent margin goal. Our $961-million 2025 sales estimate is also consistent with Savaria’s $1-billion run-rate goal by year-end. We expect 9-per-cent organic growth, driven by pricing optimization, also helping to lift margins.”
* JP Morgan’s Reggie Smith raised his Shopify Inc. (SHOP-N, SHOP-T) target to US$76 from US$74 with an “overweight” recommendation. The average is US$77.32.